Company Name: Bristol-Myers Squibb Co.
Public Availability Date: February 17, 2005
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 29, 2004
By Federal Express
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Bristol-Myers Squibb Company: Omission of Stockholder Proposal Submitted by
Lawrence A. Sanchez and Kimberly J. Sanchez
Ladies and Gentlemen:
We respectfully request that the staff of the Division of Corporation Finance
(the "Staff") concur that it will not recommend any enforcement action to the
Securities and Exchange Commission (the "SEC") if Bristol-Myers Squibb Company
("Bristol-Myers," or the "Company") omits from its 2005 proxy materials a
stockholder proposal and statement of support submitted by Lawrence A. Sanchez
and Kimberly J. Sanchez (the "Proponents") for inclusion in the Company's 2005
proxy materials. The Proponents have indicated that Mr. Cornish F. Hitchcock
shall serve as their proxy for all purposes regarding the Proposal. The proposal
and supporting statement are collectively referred to as the "Proposal" and are
enclosed herewith.
We have enclosed pursuant to Rule 14a-8(j) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), five additional copies of this letter,
along with the Proposal. We are sending a copy of this letter to Mr. Hitchcock
as formal notice of the Company's intention to exclude the Proposal from its
proxy materials.
The resolution portion of the Proposal states:
RESOLVED: The shareholders of Bristol-Myers Squibb Company ("BMS" or the
"Company") request the board of directors to adopt a policy whereby, in the
event of a restatement of financial results, the board will review all bonuses
and other awards that were made to senior executives on the basis of having met
or exceeded performance targets during the period of the restatement and will
recoup for the benefit of the Company all such bonuses or awards to the extent
that these performance targets were not achieved.
The Company believes it may omit the Proposal from its 2005 proxy materials
under Rule 14a-8(i)(3) because it is inherently vague and ambiguous such that
stockholders would not be able to determine with certainty what action the
Proposal requires if adopted. Also, the company believes the proposal is
excludable because it materially fails to consider the company's
responsibilities under Section 304 of the Sarbanes-Oxley Act ("SOX"), codified
at 17 U.S.C. 1743, which governs the same subject-matter, or to describe how
the Proposal would relate to Section 304 compliance procedures. Additionally,
the Company believes it may omit the Proposal under Rule 14a-8(i)(6) because it
is so vague and ambiguous that it is beyond the Company's power to effectuate.
I. Rule 14a-8(i)(3)
A stockholder proposal that is overly vague may be omitted from a company's
proxy materials under Rule 14a-8(i)(3) as materially false and misleading.In
Staff Legal Bulletin 14B (September 15, 2004), the Staff explained that
exclusion or modification of a proposal under Rule 14a-8(i)(3) may be
appropriate where "the resolution contained in the proposal is so inherently
vague or indefinite that neither the stockholders voting on the proposal, nor
the company in implementing the proposal (if adopted), would be able to
determine with any reasonable certainty exactly what actions or measures the
proposal requires."
Further, the Staff has consistently taken the position that a proposal may be
omitted under Rule 14a-8(i)(3) if it purports to incorporate guidelines that are
not fully described in the proposal. For example, in Peoples Energy Corporation
(November 23, 2004), the Staff concurred in the exclusion of a proposal
requesting that officers and directors not be indemnified for gross negligence
or "reckless neglect." In that case, the company argued that the proposal failed
to define critical terms or provide guidance regarding implementation, including
whether the proposal only applied prospectively. Also, in Safescript Pharmacies,
Inc. (February 27, 2004), the Staff concurred in the exclusion of a proposal
that requested expensing options in accordance with FASB guidelines but failed
to specify which FASB statements, or which alternative accounting principles in
such statements, were to be implemented. See also, e.g., Smithfield Foods, Inc.
(July 18, 2003) (proposal omitted in its entirety because it failed to describe
completely the published guidelines that would be applied in implementing the
proposal); Johnson & Johnson (February 7, 2003) (proposal omitted in its
entirety where its request for a report on the company's progress concerning the
Glass Ceiling Commission's business recommendation lacked any description of the
substantive provisions of the report); Kohl's Corporation (March 13, 2001)
(proposal omitted in its entirety because it lacked any description of the
SA8000 Social Accountability Standardsthe focus of the company's report if the
proposal was implemented).
As explained below, similar to the cited letters, the Proposal is inherently
vague and ambiguous. It is unclear what types of restatements it would cover, it
fails to specify whether the policy would apply retroactively or only
prospectively, and it materially omits any mention of how it relates to
compliance procedures under Section 304 of SOX. If the Proponents have
formulated guidelines to implement the Proposal, they are not addressed in the
resolution or the supporting statement. While the Proponents could well write to
the Staff to clarify these points, the issue is whether stockholders voting on
the Proposal as it is writtenand without such interpretive guidancewill
understand how these ambiguities would be resolved.
a. What restatements does the Proposal cover?
The Proposal states that performance bonuses and awards should be recouped from
recipients upon a "restatement." As noted above, in Safescript Pharmacies, the
proposal critically failed to identify which FASB statements or alternative
accounting treatments would apply if the proposal was adopted. Here, too, while
the Proponents may well not intend for the Proposal to apply to all restatements
(including those that are technical or caused by accounting changes), it is
unclear what types of restatements would trigger the proposed policy. As the
Staff is aware, there are many types of restatements that are required for a
variety of reasons, even technical and benign ones. Restatements may be required
due to a retroactive change in accounting standards, or a change in a company's
business. For example, under SFAS 144 a company's discontinuance of a business
segment can result in the restatement of three years of financial statements. As
the Staff's Accounting Training Manual states:
If financial statements as of a date on or after the date management adopts a
qualifying plan to discontinue a business segment (the measurement date) are
required in a registration statement or proxy, restatement of all periods prior
to the measurement date in accordance with APB 30 is required.
See Division of Corporation Finance, Accounting Disclosure rules and Practices,
Training Manual, 2000 Edition, at C-3 (emphasis added). Furthermore, it is
unclear whether the Proposal's suggested "policy" would be triggered by a
partial restatement or by a full restatement. For instance, a restatement might
be triggered by a change in a company's reporting segments under SFAS 131, but
such a restatement would directly impact only the footnotes on segment
reporting. Accordingly, the Company believes it is a fundamental flaw that the
Proposal does not identify the types of restatements that would trigger the
proposed policy.
By characterizing performance awards as "ill-gotten gains," and by analogizing
the proposed policy to the Company's existing "clawback" provisions, which are
generally triggered by individual transgressions, the Proposal seems to be
referring only to restatements where the award recipients have some level of
culpability in causing the restatement to be required. If this is the case, then
each type of restatement noted above would not come within the Proponents'
definition. Would only "culpable" senior executives be subject to the recoupment
policy, or would all of them be subject to the policy without regard to
individual culpability? As noted above, in Peoples Energy, the Staff evidently
concurred that the proposal was overly vague because, among other reasons, it
was unclear what standard of culpability was implied by the proposal's reference
to "reckless neglect." Here, the Proposal fails even to address whether
culpability is a factor, let alone specify what standard might apply.
Even if the Proposal was clear on which "restatements" might trigger the
proposed policy, what if the initial performance assumptions themselves were
based on the same financial results that are subject to the restatement? An
example might be a restatement that resulted from discontinued operations, in
which case the performance targets may have been based on the results prior to
such discontinuation. Would it be fair or sensible to require recoupment of
awards under those circumstances?
b. How should the policy be applied: retroactively or prospectively?
It is not clear whether the proposed policy would have retroactive impact on
awards previously made. As noted above, the proposal in Peoples Energy suffered
from exactly the same defectit was also unclear whether the proposal if
implemented would only apply prospectively. Here, the supporting statement seems
to imply that the proposed policy would apply retroactively by discussing the
Company's prior restatements. On the other hand, a "policy" is normally
forward-looking. If the Proposal is intended to have retroactive effect, so that
the Company would be called upon to attempt to "recoup" awards made under
existing employee benefit plans, its efforts could be subject to contractual
defenses by plan participants, including detrimental reliance on the plan
committee's determination that the relevant performance targets had been met.
Such contractual defenses could be raised because existing agreements between
the Company and plan participants do not reflect the proposed policy's
requirements.
c. How is compliance with Section 304 of SOX impacted?
Most significantly, it is unclear how the proposed policy would relate to the
Company's responsibilities under Section 304 of SOX. Section 304 provides for
the forfeiture of stock-trading profits, bonuses, and other incentive
compensation received by the CEO and CFO during the 12-month period following
the public issuance or filing of financial statements that are later restated
due to "misconduct." Is the policy suggested by the Proposal intended to track
Section 304, or supplement it? Would there be inconsistencies? The inherent
ambiguity of the Proposal is amplified further by the fact that Section 304
itself is unclear. There is little legislative history or interpretive guidance
on how the Section operates. While it is clear, for instance, that Section 304
is triggered by restatements, it is unclear which restatements would trigger the
Section's requirements. Furthermore, while a restatement would not trigger the
Section's reimbursement obligation unless it is "due to a material
non-compliance by the issuer" that was "a result of misconduct," the provision
does not define "misconduct"; also, there is a debate over whose misconduct
would be considered a triggering eventthat of the CEO/CFO, or alternatively and
more broadly, that of any employeeand over the level of culpability that would
amount to "misconduct." Finally, it is unclear who has the right or obligation
to enforce Section 304. Does the Company have such a right?
The Proposal does not mention Section 304 or explain how the Proposal relates to
it. The failure to mention Section 304 is independently, in the Company's view,
a material omission in violation of Rules 14a-9 and 14a-8(i)(3).
II. Rule 14a-8(i)(6)
Rule 14a-8(i)(6) provides that a company may omit a proposal if the company
would lack the power or authority to implement the proposal. The Staff has
granted relief under Rule 14a-8(c)(6), the predecessor to 14a-8(i)(6), where a
proposal was vague and indefinite. For example, in The Southern Company
(February 23, 1995), the Staff concurred in the exclusion of a proposal that
requested the board take steps to ensure the highest standards of ethical
behavior by employees serving in the public sector. In that case, the company
argued that the proposal did not provide guidance regarding implementation of
the proposal. Also, in International Business Machines Corp. (January 14, 1992),
the Staff concurred in the exclusion of a proposal where the resolution provided
for a generalized goal, but did not spell out how it would be achieved, by
stating "[i]t is now apparent that the need for representation has become a
necessity. The Staff noted in particular that "a matter may be considered beyond
a registrant's power to effectuate where a proposal is so vague and indefinite
that a registrant would be unable to determine what action should be taken." Id.
As discussed in Part I of this letter, the Proposal is inherently vague and
indefinite. Any action taken by the Board to implement the Proposal could be
very different from what stockholders envision at the time they vote.
Accordingly, the Company believes the Proposal is excludable under Rule
14a-8(i)(6) because it is beyond the Company's power to effectuate.
Conclusion
Despite the fact that Rule 14a-8 makes available to shareholder proponents 500
words to explain their proposals,the Proposal provides no guidance to
stockholders on how it would operate if implemented. Neither stockholders voting
on the Proposal, nor the Board attempting to implement it, would be able to
determine with certainty what action the Proposal requires if it was adopted.
Accordingly, the Company respectfully requests the Staff's concurrence that it
may exclude the Proposal from its 2005 proxy materials under Rule 14a-8(i)(3)
and/or 14a-8(i)(6).
* * *
We would very much appreciate a response from the Staff on this no-action
request as soon as practicable, and in all cases no later than January 28, 2005,
so that the Company can meet its timetable in preparing its proxy materials. If
you have any questions or require additional information concerning this matter,
please call me at (212) 546-4260. Thank you.
Very truly yours,
/s/
Sandra Leung
Vice President and Secretary,
Bristol-Myers Squibb Company
Enclosures
cc: Mr. Cornish F. Hitchcock, Esq.
5301 Wisconsin Avenue, N.W. Suite 350
Washington, D.C. 20015
[APPENDIX]
RESOLVED: The shareholders of Bristol-Myers Squibb Company ("BMS" or the
"Company") request the board of directors to adopt a policy whereby, in the
event of a restatement of financial results, the board will review all bonnses
and other awards that were made to senior executives on the basis of having met
or exceeded performance targets during the period of the restatement and will
recoup for the benefit of the Company all such bonuses or awards to the extent
that these performance targets were not achieved.
SUPPORTING STATEMENT
Like many companies, BMS has a system of incentive compensation intended to
encourage its executives and management to work enthusiastically in the
Company's interest. Incentive compensation can be a useful way to reward and
motivate senior executives, but we believe that such compensation should be tied
closely to the actual attainment of pre-set performance goals. We are concerned
that this may not be happening at BMS.
In its 2002 10-K report, BMS restated results previously reported for 1997
through 2001 and the first half of 2002. The Company's disclosure and related
press reports were not altogether clear, but evidently sales had been overstated
by some $2.5 billion and earnings by $900 million. It was clearly in the
Company's interest to have reported results correctly at the time, rather than
misstating results for years, then having to restate them.
During the six years affected by the restatement, the Company reported the
following incentive payments to the five or six named officers in each year's
proxy statement:
$78 million for bonuses, restricted stock awards, and long-term incentive
payouts.
6.8 million shares underlying stock options, SARs, etc.
These payments and awards were presumably based on results reported at the time,
not on the restated results. Given the magnitude of the restatements, these
payments would presumably have been lower if calculated based on restated
results. In our view, the difference between what the payments and awards were
and what they would have been if calculated on the basis of accurate numbers is
a form of ill-gotten gains.
We view the Company's current policy as inadequate. BMS noted in its 2004 Proxy
Statement:
Additionally, the Committee established clawback provisions relating to stock
option, restricted stock and long-term performance awards. Under these clawback
provisions, executives that violate non-competition or non-solicitation
agreements, or otherwise act in a manner detrimental to the company's interests
will forfeit any outstanding awards and will have to return any gains realized
in the prior twelve months.
BMS' policy does not explicitly require the repayment of unearned incentive pay
in restatement situations, does not mention bonuses, and leaves much discretion
to the Committee. Also, the policy is limited only to the prior twelve months
and seemingly contemplates that executives may retain unearned incentive
compensation for earlier years.
It is not enough for the Company's compensation system to encourage good work.
It needs also to discourage bad work and misstatement of results.
Please vote FOR this resolution.
[INQUIRY LETTER]
14 January 2005
Office of the Chief Counsel
Division of Corporation Finance
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Shareholder proposal to Bristol-Myers Squibb Co. From Lawrence A. Sanchez
and Kimberly A. Sanchez
Dear Counsel:
I write in response to the letter from Bristol-Myers Squibb Co. ("Bristol-Myers"
or the "Company") dated 29 December 2004 that requests no-action relief in
connection with the shareholder proposal (the "Proposal") submitted by Lawrence
A. Sanchez and Kimberly A. Sanchez (the "Proponents"). I have reviewed the
Company's objections on behalf of the Proponents. For the reasons set forth
below, I conclude that the Company has not sustained its burden of establishing
why the proposal should be excluded under the Commission's Rule 14a-8.
Accordingly, the Proponents respectfully urge the Division to deny the no-action
relief sought by the Company.
Procedural Considerations.
At the outset, we note that Bristol-Myers may have submitted the request for
no-action relief within less than the 80 days required by Rule 14a-8(j). The
Company's letter is dated 29 December 2004 and requests a respond within 30
days, i.e., by 28 January 2005. A review of the Company's EDGAR filings since
1994 discloses that Bristol-Myers has not printed definitive proxy materials
before the 15\th/ of March. If the Company genuinely intends to print definitive
materials in late January or early February, then its letter seeking no-action
relief is plainly untimely and should be rejected on that basis.
The Proposal
The text of the Proposal and supporting statement are attached to Bristol-Myers'
letter. The Proposal asks the Company to "adopt a policy whereby, in the event
of a restatement of financial results, the board will review all bonuses and
other awards that were made to senior executives on the basis of having met or
exceeded performance targets during the period of the restatement and will
recoup for the benefit of the Company any such bonuses or awards to the extent
that these performance targets were not achieved."
The supporting statement states (and Bristol-Myers does not dispute the point)
that according to the Company's 2002 Form 10-K, the Company restated results for
1997 through 2001 and the first half of 2002, based on the fact that sales had
been overstated by some $2.5 billion and earnings by $900 million, which are
material amounts in context. These restatements stemmed from the fact that
Bristol-Myers engaged in an unsound business practice known as
"channel-stuffing" for several years, evidently in an effort to report targeted
sales and earnings. This accounting scandal prompted investigations into the
inflated figures by the Commission and the Department of Justice, as well as a
number of private lawsuits, all of which have cost the Company dearly in terms
of reputation as well as stock price, which is now one-third of what it was
worth four years ago.
During the six years affected by the restatement, Bristol-Myers reported
incentive payments to the five or six named officers in each year's proxy
statements that totaled $78 million in bonuses, restricted awards, and long-term
incentive payouts, as well as 6.8 million shares underlying stock options, stock
appreciation rights, etc. The supporting statement in support of the Proposal
notes that the payments and awards made to senior executives "were presumably
based on results reported at the time, not on the restated results," which
"would presumably have been lower if calculated based on restated results." The
supporting statement opines that the difference between "what the payments and
awards were and what they would have been if calculated on the basis of accurate
numbers is a form of ill-gotten gains." 1
Bristol-Myers has long professed to have a pay-for-performance philosophy as to
executive compensation. Thus, the Company's proxy statement covering 2001
(issued in April 2002, just before the restatements were announced) stated (at
p. 14) that "executive compensation programs are based upon a
pay-for-performance philosophy to provide incentives to achieve both short-term
and long-term objectives and to reward exceptional performance, gains in
productivity and contributions to the company's growth and success." A logical
corollary would appear to be that if executives did not, in fact, achieve the
requisite level of "performance," they should not be "paid" as if they did.
To date, however, Bristol-Myers has not articulated such a policy. The
supporting statement notes that Bristol-Myers recently adopted a policy on
so-called "clawback provisions," whereby (in the words of the policy)
"executives that violate non-competition or non-solicitation agreements, or
otherwise act in a manner detrimental to the company's interests will forfeit
any outstanding awards and will have to return any gains realized in the prior
twelve months." The supporting statement expresses the view that this policy is
inadequate because it "does not explicitly require the repayment of unearned
incentive pay in restatement situations, does not mention bonuses, and leaves
much discretion to the [Board's Compensation] Committee. Also, the policy is
limited only to the prior twelve months and seemingly contemplates that
executives may retain unearned incentive compensation for earlier years."
Bristol-Myers' Objections.
1. Rule 14a-8(i)(3)
Bristol-Myers argues that the Proposal may be excluded under Rule 14a-8(i)(3),
which permits the exclusion of proposals that are so inherently vague or
indefinite that neither the stockholders in voting on the proposal, nor the
company in implementing the proposal, could determine with any reasonable
certainty exactly what actions or measures the proposal requires. Bristol-Myers
makes a collateral (though not independent) argument that because the Proposal
is allegedly vague and indefinite, the Board of Directors would be unable to
effectuate to effectuate the Proposal, and therefore it may be excluded under
Rule 14a-8(i)(6). As we demonstrate below, the problem here is not that
Bristol-Myers fails to understand the Proposal. Rather, the Company understands
all too well what the Proposal entails; its objections reflect an effort to
manufacture confusion where none exists, and they are not enough to carry the
Company's burden of excluding the Proposal.
Bristol-Myers cites three examples of supposedly vague and indefinite language.
We address each concern in order and demonstrate why the objections are not well
taken.
a. What restatements does the Proposal cover?
The text of the Proposal asks Bristol-Myers to adopt the requested policy "in
the event of a restatement of financial results." The text of the Proposal is
thus clear that it applies to restatements generally. Despite that clarity,
Bristol-Myers argues that there are restatements and there are restatements.
Specifically, Bristol-Myers notes that some restatements are only "partial" in
character and that other restatements (such as would result from a discontinued
operation) would supposedly not entail the concern underlying the Proponents'
resolution, namely, senior executives manipulating performance results in order
to pocket performance-based awards.
These arguments do not establish that the Proposal is vague. They are, at best,
contentions that Bristol-Myers may wish to raise in a statement in opposition to
the Proposal, i.e., that the Company views the policy as too broad and that it
should not apply to partial restatements or restatements involving discontinued
operations. The fact that a company may object to a proposal because of its
breadth does not render the proposal vague and indefinite. If anything,
Bristol-Myers' comprehension that the Proposal would apply across the board
demonstrates the lack of vagueness and the fact that the Company understands
what the Proponents are asking.
The resolution is a far cry from the situations in the no-action letters that
Bristol-Myers cites. In Peoples Energy Corp. (23 November 2004), the proposal
recommended a bylaw amendment under which officers and directors would not be
indemnified for acts involving "gross negligence or reckless neglect." The
company there argued principally that these concepts were too nebulous to
provide guidance. For example, the concept of "reckless neglect" was not
recognized under the law of the company's state of incorporation. In Safescript
Pharmacies, Inc. (27 February 2004), the proposal asked the company to expense
options under FASB standards, apparently unaware that FASB offered companies two
methods by which options may be accounted for. The other proposals cited by
Bristol-Myers involved situations where companies were asked to adhere to
certain standards, but those standards were either not articulated or not
articulated with sufficient precision to permit shareholders to know what they
would be supporting or opposing.
b. How should the policy be applied: retroactively or prospectively?
Bristol-Myers next argues that the Proposal is fatally vague because it does not
state whether it would apply prospectively or retroactively. The Company's
letter correctly notes that Bristol-Myers had to restate inflated earnings by
billions of dollars in recent years and that senior executives pockets tens of
millions of bonus and incentive awards and millions of shares of stock based on
these false reports. If the Proposal were to be applied retroactively,
Bristol-Myers argues, the Proposal might apply to these executives. The Company
claims too that there could be a problem because affected executives who were
paid millions of dollars they did not earn on the basis of overstated earnings
might have defenses based on contract law that allow them to keep their
"ill-gotten gains." None of these objections renders the Proposal vague or
indefinite, however.
First, Bristol-Myers is imposing a level of exactitude on the Proponents that
the Company has declined to impose on itself. Bristol-Myers' discussion of its
new clawback policy in the April 2004 proxy statement contains (at p. 21) sets
forth the only Company policy that might relate to the Proposal. That policy,
which is quoted in the Proponents' resolution, states in its entirety:
Additionally, the Committee established clawback provisions relating to stock
option, restricted stock and long-term performance awards. Under these clawback
provisions, executives that violate non-competition or non-solicitation
agreements, or otherwise act in a manner detrimental to the company's interests
will forfeit any outstanding awards and will have to return any gains realized
in the prior twelve months. These provisions serve to protect the company's
intellectual property and human capital, and help ensure that executives act in
the best interest of the company and its stockholders.
The heart of the policy is that covered executives "will forfeit any outstanding
awards and will have to return any gains realized in the prior twelve months"
but nowhere does Bristol-Myers state whether that policy applies retroactively
or not.
The Company's criticism thus rings somewhat hollow because the Proponents are
proposing a policy recommendation at the same level of specificity that
Bristol-Myers has stated its current policy. The Company's new "clawback" policy
is apparently an effort to finesse the issue by suggesting to shareholders that
the Board shares the concerns articulated in this Proposal, all the while
failing to answer the crucial question of exactly what actions might be
considered "detrimental to the company's interests." If anything, the Proposal
is trying to move the Board to adopt a policy of greater specificity than now
exists.
Second, ever since the "channel-stuffing" scandal erupted several years ago, the
question raised by this Proposal has repeatedly surfaced. At the 2003 annual
meeting, a shareholder asked what the Board of Directors was doing to recoup
incentive compensation paid on the basis of overstated earnings that had to be
restated. He was told that the Board was examining the issue, that the issue was
very complex, and that the Board would give the matter careful study. Nearly two
years later, the Board has still not provided an answer.
The fact that the Board is looking into past events is another reason why the
vagueness concern is unpersuasive. Policy declarations tend, by nature, to be
prospective. The Board is presumably aware of the benchmark or policy it is
using in its current inquiry, even if that standard is not public. The Board
thus could, if it so chooses, adopt the recommended policy; when the Board
reveals the results of that investigation, it could say what policy it used in
its ongoing investigation.
Third, the objection that covered executives might have contract defenses
sufficient to let them keep funds they did not deserve is at best theoretical.
Normally, when a company objects to a proposal on possible breach of contract
grounds, the company invokes Rule 14(a)-8(i)(1) or (2), which permit the
exclusion of proposals that would require a company to violate state law. That
is why, for example, proposals to require a shareholder vote on "golden
parachute" severance agreements normally apply only to future agreements and not
to existing contracts. Here, by contrast, Bristol-Myers has only hinted in the
most vague and conclusory way that the Proposal may conflict with existing
contracts. The Company does not identify which affected executives have such
contracts, much less provide copies of any contract language that, in the
Company's view, leaves it with no choice but to let the money stay in the hands
of those who did not earn it.2
c. How is compliance with Section 304 of SOX impacted?
Bristol-Myers' final objection is that the Proposal appears to cover some of the
same ground as section 304 of the Sarbanes-Oxley Act,3 yet the Proposal is
silent on how the two provisions would operate. This is another attempt to
conjure up confusion where there is clarity.
Section 304 is more limited in scope than the Proposal, as is obvious from the
text of the two documents. Section 304 provides for the forfeiture of
stock-trading profits, bonuses, and other incentive compensation (a) received by
the CEO and CFO (b) during the 12-month period following the public issuance or
filing of financial statements that are restated (c) "due to the material
noncompliance of the issuer, as a result of misconduct."
The three points highlighted in the preceding sentence underscore that the
Proposal is plainly designed to apply to situations other than those covered by
section 304.
The Proposal is not limited solely to the CEO and the CFO, but to senior
executives;
The Proposal is not limited to a 12-month period after, as is section 304; and
The Proposal is not limited to restatements based on "material noncompliance"
based on "misconduct" however those terms may be defined.
The Proposal is thus designed to have a broader reach than section 304, and
corporate boards certainly know how to set policies that go beyond what existing
law may require on a given topic. Bristol-Myers may disagree with the approach
in the Proposal on the merits, but that is an argument to be made in a statement
in opposition to the Proposal, not a request for no-action relief.
For these reasons, the Proponents respectfully submit that Bristol-Myers has not
carried its burden under the (i)(3) exclusion. Should the Division disagree, we
would ask it to advise as to what changes it may deem appropriate.
2. Rule 14a-8(i)(6).
Bristol-Myers also argues and the Proposal is so vague and indefinite that the
Board would be unable to effectuate the requested policy and that the Board's
action might not be what the shareholders who supported the Proposal might have
envisioned. Bristol-Myers offers no new arguments here beyond those raised in
support of its vagueness claims under the (i)(3) exclusion. Moreover, as noted
above, the Board is well aware of what the Proposal is asking it to do. Indeed,
if the Board wanted its 2004 "clawback" policy to apply when there are financial
restatements (of whatever sort), the Board could have said so quite explicitly,
rather than use mushy language about actions "detrimental to the company's
interests." Having chosen to adopt an ambiguous policy, the Board cannot
complain when, as here, the Proponents try to make that policy clearer.
Finally, having told shareholders publicly at the 2003 annual meeting that the
Board is looking into the question of recouping improperly paid incentive
compensation, the Company cannot now claim that it is somehow unable to adopt a
basic policy position on this topic.
Conclusion
For the foregoing reasons, Lawrence A. Sanchez and Kimberly J. Sanchez
respectfully request the Division to advise the Company that their Proposal may
not be excluded from the Company's proxy materials.
Thank you for your consideration of these matters. Please do not hesitate to
contact me if I can provide any further information.
Very truly yours,
/s/
Cornish F. Hitchcock
cc: Sandra J. Leung, Esq.
Mr. Lawrence A. Sanchez
Ms. Kimberly J. Sanchez
-----FOOTNOTES-----
1 We note that this Proposal is virtually identical to a proposal filed by
another shareholder at Computer Associates International that, as submitted,
received 25 percent of the vote at that company's annual meeting in August 2004.
Computer Associates is another company that had to restate earnings after
revelations of accounting practices that significantly overstated earnings.
Computer Associates did not seek no-action relief, and its statement in
opposition to that proposal suggests no doubt that the company well understood
the resolution.
2 Bristol-Myers appears to concede that its current "clawback" policy does not
come close to implementing the recommended Proposal, for the Company fails to
make what otherwise would have been the expected argument, namely, that the
Company has "substantially implemented" the requested policy and that the
Proposal may thus be excluded under Rule 14a-8(i)(10).
3 Section 304, codified at 15 U.S.C. 7243, states in pertinent part: (a) If an
issuer is required to prepare an accounting restatement due to the material
noncompliance of the issue, as a result of misconduct, with any financial
reporting requirement under the securities laws, the chief executive officer and
chief financial officer of the issuer shall reimburse the issuer for 1. any
bonus or other incentive-based or equity-based compensation received by that
person from the issuer during the 12-month period following the first public
issuance or filing with the Commission (whichever first occurs) of the financial
document embodying such financial reporting requirement; and 2. any profits
realized from the sale of securities of the issuer during that 12-month period.
[INQUIRY LETTER]
January 24, 2005
By Hand Delivery
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Bristol-Myers Squibb Company: Supplemental Correspondance/Omission of
Stockholder Proposal Submitted by Lawrence A. Sanchez and Kimberly J. Sanchez
(the "Proponents").
Ladies and Gentlemen:
Bristol-Myers Squibb Company submits this supplemental correspondence in reply
to a letter, dated January 14, 2005, that Mr. Cornish F. Hitchcock submitted to
the Staff on behalf of the Proponents. Mr. Hitchock's letter was in response to
our December 29, 2004 request that the Staff concur that it will not recommend
any enforcement if the Company omits from its 2005 proxy materials a stockholder
proposal and statement of support submitted by the Proponents.
We wish to draw the Staff's attention to the following statements that
incorrectly suggest that he is directly addressing issues raised in our December
29, 2004 request:
The Company's no-action letter request was timely. In arguing that the request
was untimely, Mr. Hitchcock mischaracterizes our request for an early Staff
response as a statement that the Company intends to mail its proxy materials
within 30 days of filing the request. The Company has no such intention;
Mr. Hitchcock's extensive quotation in his letter of his own factual
assertions contained in the text of the Proposal mask the fact that he does not
directly respond to the substance of most of our arguments;
Mr. Hitchcock's suggestion that the Company "does not dispute" each individual
assertion or characterization in the supporting statement because the Company
did not challenge them under Rule 14a-8(i)(3) is another mischaracterization. In
SLAB 14B (September 15, 2004), the Staff discouraged companies from making such
arguments due to the amount of Staff resources needed to address them;
Mr. Hitchcock does in fact clarify on page 4 of his letter that the Proposal
would apply to all restatements, even technical ones, but this supplemental
interpretation is inconsistent with the supporting statement, and in all events
would be unavailable to the stockholders who would be asked to cast a vote
(unless the Proposal were revised to reflect the clarification);
Despite the extensive discussion on pages 4 to 6 of his letter purporting to
address the "prospective/retroactive" issue discussed in our letter of December
29, nowhere does he actually state whether the Proposal would operate
retroactively or just prospectively; and
On page 7 of his letter, Mr. Hitchcock does clarify that the Proposal is
intended "to apply to situations other than those covered by Section 304" of the
Sarbanes-Oxley Act," but nowhere does the Proposal make this clear, and his
supplemental interpretation would not be available to stockholders voting on the
Proposal. As we noted in our letter of December 29, 2004, the Proposal
materially omits any mention of Section 304. Mr. Hitchcock's suggestions that
the Proposal and Section 304 would not overlap because the Proposal applies to
"senior executives" while Section 304 applies to the CEO and CFO is not
logicalsince the CEO and CFO are "senior executives."
Very truly yours,
/s/
Sandra Leung
Vice President and Secretary,
Bristol-Myers Squibb Company
Enclosures
cc: Mr. Cornish F. Hitchcock, Esq.
5301 Wisconsin Avenue, N.W. Suite 350
Washington, D.C. 20015
[STAFF REPLY LETTER]
February 17, 2005
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Bristol-Myers Squibb Company
Incoming letter dated December 29, 2004
The proposal requests that the board adopt a policy that in the event of a
restatement of financial results, the board will review all performance-based
bonuses and other awards made to senior executives during the period of the
restatement and recoup the bonuses or awards to the extent that the performance
targets were not achieved.
We are unable to concur in your view that Bristol-Myers may exclude the proposal
under rule 14a-8(i)(3). Accordingly, we do not believe that Bristol-Myers may
omit the proposal from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Bristol-Myers may exclude the proposal
under rule 14a-8(i)(6). Accordingly, we do not believe that Bristol-Myers may
omit the proposal from its proxy materials in reliance on rule 14a-8(i)(6).
Sincerely,
/s/
Daniel Greenspan
Attorney-Advisor
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